Based on recent observations and conversations, I’ve realized that there is some confusion about what DR metric is the most meaningful. Is it the CPO (cost per order)? The MER (media efficiency ratio)? Or some other number? The answer reveals a sea change in how forward-thinking DR professionals now view our business model.
This should come as news to no one, but selling on TV via short-form is no longer a profitable business. The strongest campaigns may make money in the beginning, but they almost always end up giving that money back later in the form of retail-support advertising (another way to express this being “advertising.”) Novices still experience shock when I explain this fact of DR life to them, forgetting that the idea of making money from advertising would be foreign to most companies in America. But what’s more surprising is that many DR veterans also seem to have forgotten this fact. They continue to make go-forward decisions based on CPOs and MERs, two metrics created to evaluate the profitability of TV.
The most common defense I hear of this practice is that these metrics are being used as a measure of response first and profitability second. But CPOs—or worse yet MERs—are poor gauges of response. They contain two variables that can have nothing to do with consumer interest: 1) the cost of media, and 2) the ability of a call center or Website to convert prospects into customers. MERs contain a third variable: The ability of a call center or Website to maximize revenue per order (RPO).
So if the CPO and MER are outdated, what metric should replace them? My answer used to be CPC (cost per call) since it measured how often a commercial made the phone ring. While better than the CPO, there are problems with this metric as well. One, it is also based on the cost of media, which creates the above-mentioned problem. Two, the Internet has now surpassed the phone as the primary way people respond to DR advertising. In other words, the idea of ‘making the phone ring’ is also antiquated, having been replaced with ‘making the server light up’ or some such metaphor.
As a result, I now believe the most important number in DR is something called “Response Rate” (or RR, if you must make it an acronym). Applied to TV and popularized by Lockard & Wechsler, a full-service direct marketing agency, this metric measures response (in calls or Web hits) divided by impressions (the number of times your ad was viewed). Response rate removes cost from the equation and captures consumer interest in its purest possible form…and that is the sea change that is occurring. Smart DR marketers are starting to look at a TV test as a market test in a broader sense. If the consumer interest is there, the channel of sale where that interest converts to a purchase becomes less relevant.
Jordan Pine is a consultant specializing in short-form DRTV and the author of The SciMark Report (scimark.blogspot.com), a popular industry blog.